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Climate Change: Layering Further Complexity on Mortgage Risk

Foreclosure Home For Sale Real Estate Sign in Front of Beautiful Majestic House.

Increased flooding events and other major natural disasters are a growing threat to residential housing in Canada. In this webinar, we looked at the Intact Center’s recent study on the impact of flooding on the residential housing market. In addition, we explored the complexity of mortgage risk with speakers Steve Mennill, Chief Climate Officer at CMHC, Nezihe Aquino, Chief Risk Officer at Vancity, and Kathryn Bakos, Director of the Climate Finance and Science Program at Intact Centre for Climate Adaptation. This session was moderated by Alyson Slater, Senior Director of Sustainable Finance at GRI.

Key takeaways included:

Significant impact of flooding risk on the residential housing market – A recent study conducted by Intact Center shows that catastrophic flooding negatively affects Canadian residential real estate (house sold price, days on the market, and the number of listings). Flooding causes an 8.2% reduction in the average sold price of a home, influences the lending limit, and leads to security issues for banks and mortgage providers.

Vancity to assess fire and flooding risks at property level – British Columbia, where Vancity’s assets are concentrated, endured two of the world’s most costly climate events in the last year. Vancity is responding by assessing risk at the property level to understand the loss ratio, probability of events, and ultimately whether their capital buffer is adequate against flooding and fire risks.

CMHC’s role in stabilizing the financial system – There are several ways that physical risk can affect the financial system’s stability, including costs associated with property damage, the concentration of vulnerable populations in high-risk areas, and a significant reduction in property value.

Residential mortgage data is critical to address climate risk – To price climate risk-sensitive assets and liabilities as will soon be required by OSFI, mortgage providers need more and better data. Partnerships with the government for better flood maps and insurance companies with expertise on models and tools would help lenders access the information they need.

Insufficient insurance coverage – Physical damage to property, including flooding damage, is explicitly excluded by CMHC as an insurable peril in the event of a mortgage insurance claim. If borrowers cannot fund the damage, the lender may experience a loss. Although default risk from flooding has been minimal over the years, it is starting to change. Flood risk has not been properly absorbed and priced in credit without adequate property and casualty insurance coverage.

Action to take – Joint action from different layers of government (federal, provincial, and municipal), real estate developers, community groups, and across the housing finance value chain is needed to address flooding risk in a meaningful way.


Nezihe Aquino headshot

Nezihe Aquino
Chief Risk Officer, Vancity


Kathryn Bakos headshot

Kathryn Bakos
Director, Climate Finance and Science of the Intact Centre on Climate Adaptation



Steve Mennill headshot

Steve Mennill
Chief Climate Officer, CMHC